Associated British Foods PLC

The European Central Bank decided to raise its key policy rate by 25 basis points to 2.50% and projected inflation of 3.0% for 2026. At a press conference after the governing council meeting, President Lagarde said risks to the inflation outlook are tilted to the upside, and markets raised their bets on the total rate increase by the April 2027 council meeting from about 51 basis points before the announcement to 60 basis points. In response, the STOXX Europe 600 index hit its lowest level in about two months, while the German 10-year bond yield rose to its highest since 2011 and the French 30-year yield to its highest since 2003. Intensifying attacks on ships in the Middle East pushed North Sea Brent crude futures to 105 dollars a barrel, and with copper prices falling, the STOXX Europe 600 resources index dropped 3.70%, with Antofagasta down 5.7%, Aurubis down 5.3% and Anglo American down 4.9%. In London, the FTSE 100 fell for a fifth straight session, with HSBC down 1.3% after announcing its chief financial officer will step down in 2027, and Associated British Foods down 7.9%.

Associated British Foods shares fell more than 9% after its latest trading update showed another weak quarter for Primark in continental Europe alongside a sharply deteriorating outlook for the group's sugar operations. Primark's like-for-like sales are expected to decline 3% in the fourth quarter ending September 12, with the UK and Ireland edging 0.4% higher while continental Europe falls 4.3%, though total Primark sales should still rise around 2% for the full year as new stores and franchise expansion add growth. The U.S. looks healthier, with fourth-quarter sales rising around 11% as Primark expanded to 47 stores, and franchise operations in the Gulf also performed strongly, with further expansion planned into Saudi Arabia and Mexico. Against that backdrop, Primark confirmed one of the biggest strategic changes in its history by announcing plans to offer home delivery in Great Britain, acquiring Debenhams Group's automated Sheffield fulfillment facility for £90 million to expand beyond click and collect into direct delivery for the first time, with no launch date yet given. Sugar gave ABF shareholders an even bigger reason to sell, as the division is now expected to produce an adjusted operating loss toward the upper end of the existing £25 million to £60 million range this year, before potentially deteriorating to between £70 million and £170 million in 2027, while Grocery profit is also expected to come in slightly below previous guidance after weaker Twinings demand. ABF is also preparing to demerge Primark from the Food business before the end of 2027.

Shares in Associated British Foods fell 3.82% to 1,910 pence after the company warned that the Middle East conflict has pushed up costs for its sugar business, which will dent profits in Europe. ABF said sales from its sugar arm declined 4% in the 16 weeks to 20 June, citing reduced selling prices in Europe and higher imports in South Africa. The company noted that gas costs have risen significantly due to the conflict, and if these dynamics persist, it expects to recognise onerous contracts in the 2026 financial year. ABF maintained its full-year outlook for the rest of the group, which includes grocery brands like Twinings and Patak's, and is proceeding with a planned demerger of its food businesses from Primark by the end of 2027.

Associated British Foods expects a drop in profits this year and warned that higher gas prices will further deteriorate profits in its sugar arm next year. The group, which is preparing to spin off Primark by the end of next year, reported a 3% rise in group revenues to £5.3 billion for the quarter to June 20, with Primark sales up 4% to £2.92 billion. However, like-for-like sales at Primark dipped 2.2%, and sugar revenues fell 4% due to lower European selling prices. Chief executive George Weston said the Middle East conflict has increased gas price expectations, impacting the European profit outlook for sugar, while the full-year outlook for the rest of the group remains unchanged.